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Jurisdiction risk - practical steps and pointers

A lessor is likely to need to take into account multiple jurisdictions when evaluating jurisdictional risk. In addition to the governing law of the lease, a lessor also needs to be aware of the impact of the laws of the jurisdiction in which the lessee and aircraft are to be based and where the aircraft operates and how these laws affect the lessor’s contractual rights.

Remedies and Access to Court

In the event that the lessor needs to take urgent action to prevent or require the lessee to take particular steps (for instance to deliver up the aircraft), what steps can be taken in the local courts? How effective are the local courts in dealing with urgent applications? Is self-help available? If so, what are the limits on this? It is important to get local law advice on what courses of action are available to a lessor.

Aviation conventions

Consider which, if any, of the following aviation conventions the jurisdiction in question has ratified and brought into force – 1944 Chicago Convention, 1948 Geneva Convention, the 2001 Cape Town Convention (including the Aircraft Equipment Protocol) – as this will have an effect on, for instance, the registration and priority and enforcement of ownership and security interests in the aircraft.

Liens

Lessors should be aware of what entities may assert liens against the aircraft for monies owed by the lessee. The rules differ depending on the jurisdiction but can include any maintenance providers and even airports for unpaid charges. A lease will invariably include a clause which does not permit the lessee from taking any action which could result in a lien being created. The lessor should keep track of charges that are being incurred by the lessee in relation to the asset (for instance, navigation and airport charges) and provision should be made in the lease for the lessor to be given access to this information from third parties such as Eurocontrol.

Taxes

Are there any tax implications to be aware of in the relevant jurisdictions? For instance, in certain jurisdictions taxes owed by the lessee may attach to the aircraft.

Insurance

Are there particular requirements as to the insurance cover that needs to be in place? In certain jurisdictions there will be a minimum liability insurance amount required and there may be requirements regarding the level of cover that must be taken out with local insurers.

De-registration

What steps are needed to de-register the aircraft? Will a power of attorney in favour of the lessor be effective in allowing it to deregister the aircraft? If so, consider whether there are any particular requirements that such a power of attorney must satisfy, for instance, the power of attorney may need to be written in a prescribed language or it may need to be notarized.

Enforcement

When drafting the dispute resolution clause in the lease it is crucial to be aware of the jurisdictions where any arbitral award or court judgment might be enforced (in the event that the lessee does not comply with the terms of the award or judgment voluntarily). This will depend on where the assets of the lessee are located. Whether that jurisdiction would recognise and enforce a court judgment will depend on whether there is a reciprocal enforcement treaty between that country and the country in which the court judgment is given. If not, is the country where the assets are located a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? If so, then consider including an arbitration clause rather than a clause which provides that a court has jurisdiction.

Sanctions

In addition to any sanctions which might affect the transaction at the time of contracting, the lessor needs to be aware of any change in sanctions during the life of the lease which might affect the transaction. The lease should contain appropriate wording to cater for such an event, as the geopolitical situation can change very quickly.

Political risk

When dealing with jurisdictions that are politically unstable or may become so, consider including an appropriately worded material adverse change clause in the lease which would entitle the lessor to terminate in certain circumstances.

Compare jurisdictions: Patents

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